NATIONAL OPEN UNIVERSITY OF NIGERIA

UNIVERSITY VILLAGE, PLOT 91, CASDASTRAL ZONE, NNAMDI AZIKIWE EXPRESS WAY, JABI, ABUJA.
FACULTY OF MANAGEMENT SCIENCES
JANUARY 2018 EXAMINATION

COURSE CODE: BFN 409                                                             

CREDIT UNIT: 3

COURSE TITLE: PROJECT EVALUATION

TIME ALLOWED: 3 HOURS

Instructions:   1. Attempt question number One (1) and any other Two (3) questions.

    2. Question number 1 carries 25 marks, while the other questions carry 15

3. Present your work in coherent and orderly manner.

QUESTION ONE (COMPULSORY)

Calculate the net present value of a project which cost N500,000 but generates cash inflows of N150,000, N300,000, N400,000, N200,500, and N192,500 over a five year period. The required rate of return is 10%. These discount factors are relevant: 0.909; 0.826; 0.751; 0.687; and 0.594 respectively.

(b) Compare Financial Analysis with Economic Analysis in relation to project evaluation.

QUESTION TWO

(a) Figures below represent some aspects of a project cost.

            Land, Building and steel structure                             =N= 22,000,000

            Machinery and equipment                                                      -----

            Storage tanks                                                           8,100,000

            Utilities                                                                                   -----

            Pre-operational expenses                                                     1,450,000           

            Working capital                                                                       -----

            Total:-                                                                         =N=174,907,994              

Additional information: (i) sum of the first three items equals  =N=120,740,000; and  (ii) sum of the last two items equals  =N=32,067,994. You are required to calculate for the missing figures. Show all your workings

(b) The cost of a project is normally classified into distinct areas. Mention and explain such types of project costs.   

QUESTION THREE

(a) Projected cash flow statements assist us to evaluate a firm’s future performance and financial condition. What are the basic questions do they assist the firm to answer? 

 (b) Mention and explain the basic sources of cash inflows from a project.

QUESTION FOUR

(a) A project costs N100,000 and has a scrap value of N40,000. The cash inflows before depreciation and taxes are N40,000, N50,000, N60,000 for the first three years. The tax rate is 50% and depreciation is on straight line basis.

You are required to calculate the accounting rate of return for the project.

 (b) What are the major characteristics of a project?

QUESTION FIVE

(a) Explain the term Cost-Benefit Analysis.

(b) Cost-benefit analysis has to obey certain principles in order to be meaningful. Mention and discuss two of these principles with good examples.

QUESTION SIX

According to Kaye (2001), there are stakeholders that could be affected by a risk incident occurring in the organization. Mention and briefly elucidate them.